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Google parent Alphabet announced Larry Page and Sergey Brin would step down as CEO and president, respectively. And markets took the news in stride.

In fact, investors were happy. Shares jumped by 2% from Tuesday’s close. “In our view, such a change will not impact the firm’s operations nor its strategy,” Morningstar senior equity analyst Ali Mogharabi wrote in a client note. Page “has not been very involved in the company’s operations, and under the leadership of Pichai and Ruth Porat, Google (which brings in nearly all of Alphabet’s revenue) has continued to operate well.”

Plus, the two will “remain active as co-founders, shareholders and board members of Alphabet,” according to the company. As if anyone could stop them.

Not only wealthy and influential, the co-founders have absolute control through a special stock class created with the original IPO of Google to lock in that influence. And, thanks to a specific change made in the 2015 creation of Alphabet, the mechanism that would have let Page and Brin pass on their control forever is no longer.

Multi-class stocks

Nine of ten U.S. public companies have a stock structure in which each share gets one vote on any one issue, according to the Council of Institutional Investors (CII).

The remaining 10%—and Alphabet would be one of them—have a multiple-class stock structure in which some types of stock have more rights, such as a greater number of votes or higher dividends per share. Companies commonly use the tactic to concentrate control into a few favored hands.

A typical ratio is ten votes per share rather than one, although CII noted that “a troubling number of newly public companies have shown a fondness for even more egregious ratios.” The organization mentioned Peloton, Pinterest, Lyft, Domo and Snap as examples. WeWork’s failed IPO had planned for a 20-to-one ratio.

The practice started with newspapers decades ago. “The idea was to insulate them from market pressures so they could be everything that newspapers could be,” says Nell Minow, vice chair of institutional investor consulting firm ValueEdge Advisors.

Over the years, others pushed to expand the use. First it was corporate raiders in the 1980s. In the 90s, tech entrepreneurs took notice. “You had these founders that wanted the access to capital and limited liability of a public company, but they wanted the control of a private company,” Minow says.

When Google went public in 2004, the class structure appeared in the S-1. Back then, there were Class A shares, with one vote per share, and Class B, with 10 votes per share. Eventually, the company added a Class C that had no voting rights. Alphabet’s initial incorporation charter from 2015 maintained the three-class structure.

Alphabet’s 2019 proxy statement shows that as of April 22, there were more than six times as many Class A shares (299,436,023) as Class B shares (46,544,284) in number. But A shares represent just under 300 million votes, while B shares, which hold that 10-to-1 ratio potency, represent 465.4 million. It’s not hard to see that in any vote, B shares can always overrule the A ones.

Only five people have Class B shares: Page (42.9% of them), Brin (41.3%), former CEO and chairman Eric Schmidt (8.6%), Alphabet chief legal officer David Drummond (0.03%), and venture capitalist and long-time board member John Doerr (2.4%). Page and Brin together control 84.2% of Class B shares, which represents 391.9 million votes out of a possible 737.2 million, or 51.2% of the total. So long as co-founders agree on a course of action, they can direct the company do whatever they want.

Not that it would come down to an actual vote. “If you control the board, you don’t need anything else,” Minow says. And people who have a majority of votes control who is on the board. As Morningstar Mogharabi noted, it seems likely that Alphabet’s direction will continue as it has, in which case shareholders might have nothing to fear.

Who gets control

That wouldn’t have necessarily been the case had Alphabet not been created to subsume Google. Under the original Google S-1, there were some important restrictions on Class B shares. B shares would convert into A either on transfer to someone else or on the death of the holder. The idea was to ensure that the voting advantage didn’t continue forever or outside a small group. (Today, many governance experts suggest that dual-class structures end after seven years.) However, in the case of Google, there was a workaround.

A provision allowed a Class B holder to transfer shares “to trusts, corporations and partnerships controlled by a holder of Class B common stock” for tax planning purposes. Such a move would technically remove the shares from the ownership of the holder. This provision didn’t say, though, that after the transfer the now-former holder had to continue controlling the trust, corporation, or partnership.

Minow says the wording made it possibile to create a vehicle that could perpetually hold shares and read as though that was “the actual intention.”

Google did not respond to a request for comment. But an examination of the Alphabet charter by Elliot Lutzker, a partner at law firm Davidoff Hutcher & Citron, showed a critical difference that made such a move impossible.

As Alphabet became the parent of Google, the Class B holder had to retain control of the trust, corporation, or partnership. If for any reason that scenario ended, including death, the Class B stocks would convert to Class A. “There’s no possibility that they’re going to be able to pass these [super-voting] shares on to perpetuity,” Lutzker says.

Value of the shares

Aside from the voting power, the shares have immense value. The price of an A share at the close Wednesday was $1,318.15. Assuming B shares converted to A, Page’s holdings would be worth $26.3 billion and Brin’s, $25.4 billion.

Had it not been for the changes made in the Alphabet incorporation, they could have been worth much more because of a “control premium” from the value of the additional voting rights. “It varies depending on what’s going on,” Minow says. “The differential can range from twice as much to four times as much, but it’s really hard to say. And if you can’t transfer the super-voting part of the share, then selling it is only worth what the regular shares are.”

Still, it would be hard to complain at the ordinary share price.